Greece gets some short-term debt relief from eurozone

AP News
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Posted: Dec 05, 2016 3:04 PM
Greece gets some short-term debt relief from eurozone

BRUSSELS (AP) — Greece won some short-term debt relief from European creditors on Monday even though it failed to clear the latest hurdle in its bailout program that has prevented the country going bankrupt and crashing out of the euro.

At a meeting of the 19 eurozone finance ministers in Brussels that was largely overshadowed by the Italian referendum result that forced Premier Matteo Renzi to offer his resignation, Greece's creditors offered some immediate help to the cash-strapped Greek government.

Among the measures offered were a smoothing of some of Greece's repayment profile in order to prevent debt repayment humps on the way and a waiving of an interest rate increase that was due to take effect next year. In return for successfully enacting a wide-ranging package of economic reforms and budgetary restraints, Greece's creditors promised earlier this year to offer some debt relief measures for both the short and long term.

"They are much more ambitious measures than we expected in May or hoped for, so that's very promising," said Greek Finance Minister Euclid Tsakalotos. "This will start helping the Greek economy all at once."

According to Klaus Regling, the head of the European Stability Mechanism, the body that releases the bailout funds to Greece, Monday's package of measures will reduce Greece's debt burden by 20 percentage points by 2060.

Though conceding there's a large amount of uncertainty given the timescale involved, Regling said the benefits to Greece were "clear" and would help make Greek debt sustainable.

Though successive governments have slashed spending and raised taxes, Greece is still lumbered by high debt of more than 175 percent of annual GDP. That's far more than any other eurozone country and a level that the IMF — and the Greek government — consider unsustainable. It would take Greece decades of economic growth to get debt down to more manageable levels around 100 percent of GDP.

The Greek government is looking for much more help over the years ahead from its creditors but it still has further hurdles to clear before longer-term assistance is offered.

Though an outright reduction in Greece's debt — a so-called haircut — has been ruled out, the Greek government insists that its eurozone creditors must deliver on their promise in 2015's bailout agreement that Greece will get some debt relief. These could take the form of a longer repayment timetable for Greece's loans or further reductions in the interest rates payable on those loans.

Jeroen Dijsselbloem, the eurozone's top official, reiterated the eurozone's strategy that longer-term help for Athens will not be offered until mid-2018 when Greece's current bailout program is due to end.

Under the terms of the bailout, which could see up to 86 billion euros ($91 billion) in loans over three years, the Greek government promised a series of economic reforms and budget cuts.

To get there, Greece needs to secure successful reviews of its adherence to the bailout program in stages. Tsakalotos was hoping that he would secure a successful review of the second stage of the program at Monday's meeting but conceded that there were still three or four issues that needed to be resolved.

A successful review of the current phase in the bailout would get Greek bonds one step nearer to being eligible to be bought by the European Central Bank via its bond-buying program from which it has been excluded. That's important as it could help reduce the interest rates that Greece has to pay when it hopes to start tapping bond markets again from 2018.

Greece has for the past six years relied on bailout loans — totaling around 300 billion euros — from eurozone partners and the International Monetary Fund to avoid bankruptcy.

The IMF, which has yet to commit to Greece's third bailout program, has argued strongly in favor of a big debt relief package for Greece and has suggested that the forecasts used in the Greek bailout plan are too rosy.

Greece's Tsakalotos urged the IMF and others not to "jeopardize" the progress that is being made with "increased uncertainty."

Germany in particular, has been hesitant to deliver anything substantial on Greece until it has delivered the reforms.

"What I think is realistic on Greece is that they will manage to be competitive at some point if they carry through the necessary reforms," said Wolfgang Schaeuble, Germany's finance minister. "It's about that and absolutely nothing else."

Worries over Greece may have eased in recent months but the country still has the potential to be the biggest problem for the long-run survival of the euro.

The left-wing government of Alexis Tsipras is losing support, according to opinion polls, and only has a small parliamentary majority, a combination that could make it more difficult to deliver the reforms required by creditors.

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Geir Moulson in Berlin contributed to this report.